Sri Lanka Retail Set to Rule

Sri Lanka had seen sloppy growth in the years when militancy reigned but in past two years after the war the country has emerged in a manner that world is looking at it.

High Growth Prospects

Sri Lanka has grown to become an economy worth $64 billion and a per capita GDP of about $7900 The country has mostly had strong growth rates in recent years, ahead of other countries in South Asia. The growing sectors in the market include tourism, tea export, apparel, retail, textile, rice production and other agricultural products. Moreover, according to a report by Bartleet Religare Securities, Sri Lanka has a higher per capita income in comparison to other SAARC countries which it points out is said to increase to $4,000 by 2016.

Looking at the statistics and the growing population of the country backed by strong per capita income growth prospects, in terms of retail these factors will play a great role in influencing consumers to buy more frequently.

The country in terms of retail is still in its nascent stages but with strong home-grown brands which have brought in the best of knowhow, space, store experience and which make them competitive enough as compared to other international brands.

“Currently, there are around 150,000 retail outlets and 200 super markets and the industry is growing at a rate of 10-15 per cent year on year,” says a market expert.

According to a report by AT Kearney, 2012 Global Retail Development Index, local players dominate retail in Sri Lanka. Organised retail makes up only about 3 per cent of the $25 billion to $30 billion market, but is expected to grow, especially in apparel and food.

Industry Shining

According to a report compiled by Bartleet Religare Securities says, according to the available data, Sri Lanka’s FMCG market weighed at LKR 141 billion during the year 2010 of this 74 per cent was held by food and beverages.

The second best industry in the market is fashion. Even though there is no reliable data to indicate size of the industry, there are a few big players that rule including Odel, Hameedia, No limit. These brands are the one stop solution for fashion conscious consumers in the country as they bring international designs and quality.

According to AT Kearney’s report, spurred by Sri Lankans’ fashion consciousness, foreign apparel retailers and domestic garment manufacturer-exporters are setting up shop in Sri Lanka. Brands such as Mango, Levi’s, and United Colors of Benetton opened stores last year. Several Indian brands, such as Nalli Silks and Madura Garments (which includes Louis Philippe, Allen Solly, and Peter England), have a significant presence in Sri Lanka.

The report further shares, domestic retailers have ambitious in-country expansion plans. Arpico increased its number of supermarkets from 10 to 35 in 2011; Keells Super, Laugfs SunUp, and Lanka Sathosa are opening new outlets in different formats, including hypermarkets, supermarkets, express outlets, and mini supermarkets.

Even the demand for consumer durables was strong all through 2012 despite unchanged consumer sentiment.

The route to the Sri Lankan market

Sri Lanka, still a domestic players’ market, has lately opened its doors for various international and Indian brands to operate in the market.

The region is an emerging commercial hub and a booming international tourism hotspot as number of tourists coming to the country have gone up by 16.5 per cent in 2012 vis-a-vis 2011.

As sales are hugely tourist-driven, in spite of small size and population, the overall market potential is quite high. The possible ways of entering the market remain M&A, joint ventures, licensing, distribution and franchising. Franchising is the most lucrative way even though its still in very early stages in the country.

The New-born Consumer

The Sri Lankan retail market is seeing a resurgence as Consumer lifestyles are also changing. With a greater degree of westernisation, a comfortable shopping experience is desired. Hence, modern retail formats can provide this consumer requirement. At the heart of the growth of modern retailing, is the ‘consumer’.

Talking about consumption patterns our expert explains, “Seasonal demands are prominent. December and April are peaks. Larger segment of society is price sensitive. However there is a sizable and growing middle and upper middle class which have an appetite for upmarket branded merchandise.”

There also has been a rise in number of credit card holders in the country. According to banks the growth was due to “the macro environment being conducive for consumer confidence, propelling increases in consumer spends and the appetite for credit in the emerging segments.”

Challenges

The challenges in the Sri Lankan retail market are aplenty as brands and retailers step up to offer the best of customer experience. The foremost challenge of the industry is retaining good employees as the people still prefer employment opportunities in the Middle East.

This scenario has called for strong training sessions.

The other is to retain customers, for which retailers are now implementing loyalty programs but still with a question that will this be the best possible solution in retaining customers in the long-term as loyalty programs also require investments on technology and management front.

On the other hand, looking at international brands foraying the biggest problem is high import duties which stand at almost 100 per cent making it difficult for international brands to set up base and making it a reason enough for existing home grown brands and retailers to flourish.

Modern Retail: The game changer

Looking at the upsurge of brands in various retail sectors now is the need to have large spaces to operate or otherwise brands would lose their sheen.

In fact for these brands to survive, the manufacturers have moved the modern trade way as traditional trade has space constraints.

According to a study by Prasanna Perera, Marketing and Management Consultant, Chartered Marketer, CIM U.K. in 2010, for a sustainable growth of modern retail things that need to be addressed include supply chain integration and management, technology and better utilisation of retail space.